This content is from: Local Insights

South Africa

The Security by means of Movable Property Act 1993 commenced on May 7 1993 and regulates the legal consequences of a special notarial bond over movable property described in the notarial bond. The effect of registration of such a bond is that the bondholder is placed in the same position as a pledgee and acquires a so-called "real right" to the movable property described in the bond, which means that the rights to the bonded property are not affected, even where the bonded property is alienated to third parties. A real right is distinguishable from a personal right, in that a real right is enforceable against third parties and not just against the person(s) privy to the security arrangements (as is the case with the personal rights).

Where a third party acquires property that is subject to a special notarial bond, the property is acquired subject to the bondholder's rights and the bondholder retains a right of preference in respect of the proceeds of any sale of the bonded property.

The position as set out above regarding special notarial bonds does not apply to general notarial bonds or special notarial bonds registered prior to the commencement of the Act. In these cases, the bondholder does not enjoy a real right of security in respect of the bonded property. It is generally thought that, where a third party acquires bonded property, the bondholder may be protected on the basis of the doctrine of notice (in circumstances where the third party acquirer has knowledge of the existence of the bond) in which case the bondholder may approach a competent court to have the newly acquired right (for example a pledge over the property) set aside. However, in the main the rights of such bondholder are of importance only upon the insolvency of the grantor of the bond and then only with regard to the property subject to bond which was in his estate at the time of the insolvency. Such a bondholder is not a secured creditor but is entitled to preference over the concurrent creditors of the insolvent grantor of the bond with respect to the proceeds of the property subject to the bond, insofar as such proceeds form part of the free residue of the estate.

In view of the limited security offered by general and special notarial bonds registered prior to the commencement of the Act, it is recommended that creditors look for additional security, or look to ensure that a special notarial bond is registered in terms of the Act.

Mark Kyle

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